Walmart doubles down on grocery as traditional rivals sputter

Walmart is doubling down on its grocery business as more consumers are turning to the company for their food needs amid lingering inflation. 

The nation's largest retailer reported in the prior quarter that sales at U.S. stores rose 5.3% as it continues to gain market share in the grocery and general merchandise categories. 

As the world's largest retailer attracts even more cost-conscious consumers, it is also remodeling the produce sections of its stores and increasing the assortment of food that it is offering, Walmart CFO John David Rainey told FOX Business. 

"We've got a very high-quality produce offering for people, and it invites them in," Rainey said. "It's a much broader assortment than what we've had historically." 

In November, overall food costs rose 2.7% according to the consumer price index. Some fresh vegetables were up even more at 2.9%.

WALMART BEATS WALL STREET EXPECTATIONS, RAISES OUTLOOK AS IT OFFERS MORE GROCERY DISCOUNTS

The company has been building new modernized stores and remodeling hundreds of others. Over the past three years, it remodeled about 700 stores each year on average, and it plans to convert more in the coming year. The company's new and updated stores include improved layouts, bigger product selection, refreshed signs, paint and shopping carts.

Aside from its improved aesthetic, Rainey also credited its private brand as another driver. Walmart is seeing an increase in private brands as a larger share of overall sales, driven partly by consumers’ focus on price during high inflation. Earlier this year, the company launched its latest and most expansive private label brand, Bettergoods, which encompasses 300 items including frozen, dairy, snacks, beverages, pasta, soups, coffee and chocolate. 

Not only is the company offering a more expansive selection of food within the private label, but the quality of the food has improved as well, Rainey said. 

"It's much broader and appeals to a lot more customers and members," Rainey said, adding that "the quality is just much different than what you've seen historically." 

He also highlighted that consumers’ growing reliance on convenience is benefiting Walmart. According to Rainey, one-third of their customers are paying extra for expedited food delivery through Walmart’s delivery services.

Walmart shares rose over 70% last year, far outpacing the S&P 500's 20%+ rise. 

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This comes as the $25 billion merger between Albertsons and Kroger crumbled amid concerns from federal regulators that the deal would undermine competition in the grocery industry. The deal would have been the largest merger in the history of the grocery industry.

Ticker	Security	Last	Change	Change %
ACI	ALBERTSONS COMPANIES	19.80	+0.14	+0.71%
KR	THE KROGER CO.	61.46	-0.48	-0.77%

However, U.S. District Judge Adrienne Nelson said that the plan put forward by the two companies to reduce grocery prices and divest more than 500 stores failed to address concerns about reduced competition in the sector and the impact it could have on consumers and workers. 

Albertsons, which subsequently sued Kroger for not working hard enough to secure the merger, claimed the deal would have expanded competition, lowered prices, increased associate wages, protected union jobs and enhanced customers’ shopping experience. 

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As of September, Albertsons Companies operated 2,267 retail food and drug stores with 1,726 pharmacies, 405 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities.

Meanwhile, Kroger operates 2,750 grocery retail stores under a variety of banner names, including Kroger, Ralphs, Dillons, Smith’s, King Soopers and Fred Meyer.

In the U.S., Walmart operates just over 4,600 stores. This does not include its membership warehouse, Sam's Club, which houses about 600 locations around the nation.